Beware of opening, closing cards quickly to get rewards points
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I'm trying to build up miles to take my wife on an awesome honeymoon. I'm thinking about applying for a couple of cards, making a couple of purchases, collecting those sign-up bonus miles and then canceling the cards once I've gotten enough miles. Do you think that's a good idea? -- The fiance
Congratulations! Getting married is a big deal, and it's understandable that you'd want a honeymoon you'll both remember forever. Lucky for you, this is an excellent time to sign up for a rewards card. As airlines and hotels compete for our limited travel dollars, introductory deals on their affiliated credit cards are getting downright enticing. You can get 30,000 or more points on certain cards and sometimes use them on both flights and hotels.
But you might want to scratch the scheme of canceling your cards after you snag the flights and honeymoon suite. Sign-up rules may require you to commit for a specified period. Regardless, I advise finding a card you plan to keep a while for a couple of reasons.
First of all, you should be building, not botching, your credit score. Every time you sign up for a new card, the issuer checks your credit, which dings your score. You're also judged on how long you hold onto a card -- the longer, the better. Sign up for a couple cards and then drop them within a year and you'll be penalized twice, for each card, once when you sign and once when you cancel. Also, canceling credit cards can hurt what's known as your credit utilization -- how much credit you have compared to how much you owe. For example, if you owe $2,500 on three credit cards with a total credit limit of $10,000, your utilization is 25 percent. However, if you cancel one of those cards, cutting your credit limit to, say, $5,000 -- and you still owe that $2,500 -- you'd be increasing your utilization to 50 percent. (For more on credit scoring, check out CreditCards.com's "How your FICO score is calculated" series.)
You and your bride are just starting your life together. A honeymoon is great, but it's over in a couple of weeks. Your credit histories, however, are just beginning to take shape and will impact your choices in many ways. Even if you sign up for these cards in your own name, the damage you do to your own score will impact any purchases you make together.
Are you planning to buy a house in the next few years? First thing a mortgage lender will do is check your credit scores. If one is well below 700, you're not going to get the best interest rate and may find it difficult to buy the home you want.
If, on the other hand, you have an excellent credit score, one disposable rewards card won't kill you. Until now, I've been assuming you and your fiance are relatively young and haven't had decades to build your credit. Let's say, on the other hand, you're pushing 40 and have excellent scores -- say you've got one card each that you pay off faithfully every month. In this case, taking on an extra card for its introductory rewards probably won't sink your score.
Another reason you should be wary of your plan is that the miles may not be a very good value in the long run. It's always good advice to read the fine print before getting a new credit card or loan. Generally, the better the introductory rewards, the higher the APR, annual fee or both. If a card charges a $275 fee, there goes your free flight. On the other hand, with the cost of airfares rising, the $40 annual fee on the American Express JetBlue card, for example, may be worth the round-trip domestic flight those 10,000 introductory TrueBlue points will earn after your first purchase.
Sometimes you have to spend a significant amount before rewards kick in. If that's the case, make sure the total isn't more than you would normally spend, pay the balance every month so APR won't add up, and put this scheme in place well before the honeymoon.
So what's the best-case scenario for helping you build miles toward that dream honeymoon? Let's say one of you needs a new credit card and you also want another one to cover joint purchases. Shop around and find a card with rewards for the airlines or hotels you use most often, so you can accrue extra points with every purchase and bonus points when you book flights or rooms. That way, you build your credit and make sure this honeymoon isn't your last big adventure, just the first of many to come.
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